Dangers of Carbon Market

• To analyze, reflect and make proposals on the dangers of carbon market mechanisms (today’s and new mechanisms) and their effectiveness in reducing the gases that cause climate change.

Main issues to be discussed by the group

• What are the dangers of carbon market?

• Has the market been capable of regulating carbon emissions of greenhouse gases? Can it do it in the future?

• Is it necessary to create new mechanisms to promote developing carbon market?

• Who has been favored by the development of carbon market?

• Is it possible that carbon market problems will be resolved with the implementation of regulatory measures?

• What measures could be taken regarding carbon market mechanisms in climate change negotiations?

• Could it be that the “Copenhagen Accord” aims to promote the development of carbon market?

Background

• A summary of the history of the carbon market developed in the book “Carbon Trading, how it works and why it fails states that: “Although it is not possible to define a single carbon market maker, a number of theories get to the work of economist Ronald Coase, who concluded that contamination as a factor of production among others, would be traded between hands of those who can produce the greatest wealth among them, and therefore, the maximum of welfare for society.” http://www.tni.org/sites/tniclone.test.koumbit.net/files/download/carbon-trading-booklet.pdf

• According to the document “Environment and the Economy” – The impact of restricting the permits in the SO2 market, “there were some attempts to implement emissions trading schemes for pollution developed by the Agency of Environment Protection Agency (EPA). The most significant experience was the pattern in which the exchange of sulfur dioxide credits was allowed, as part of the Clean Air Act in 1990, which sought to reduce the costs of reducing SO2 emissions, so that acid rain ca be reduced. That paved the way for other business programs in the United States concerning water pollution, wetland destruction, among others.

• “A group of experts from developed countries led by the International Energy Agency and the Organization for Economic Cooperation and Development (OECD) developed proposals for industrialized nations within the United Nations process and these became an important forum for the development of an emissions trading scheme within the Kyoto Protocol. http://books.google.com.bo/books?id= qp7Wt9GvccC&printsec=frontcover&dq=The+Kyoto+Protocol:+international+climate+policy&ei=BC5wS5nqE42cMoGwnY4P&cd=1#v=onepage&q=&f=false

• According to the issues established by Debbie Stowell in her book “Climate Trading: Development of Greenhouse Gas Markets” the U.S. government began to design a proposal on carbon trading, announcing in 1996 that this class of “flexibility” would be ‘a key requirement for the acceptance of binding commitments,’” according to the study on “Development of greenhouse gas Markets in 2005.

• In December 1997, the third Conference of the Parties held in Kyoto, Japan took place, during which the Kyoto Protocol was approved with the support of all countries that are part of the Convention, and to date, 184 countries have ratified it. This international treaty is one of the most important milestones in the negotiations on climate change since it establishes that the developed countries and countries in transition to market economies undertake the commitment to reduce their emissions by at least 5.2% below the 1990 level. (For further information on this subject refer to the working group on the Kyoto Protocol emission reduction commitments.)

Concept

The Kyoto Protocol has generated an international carbon market through the creation of flexibilities for developing countries to meet their commitments. The Kyoto Protocol establishes three flexible mechanisms: http://unfccc.int/resource/docs/convkp/kpspan.pdf

a) Joint Implementation, Article 6 states that: “For the purposes of meeting commitments under Article 3, any Party included in Annex I may transfer to any other such Party, or acquire from, the units emission reductions resulting from projects aimed at reducing anthropogenic emissions by sources or enhancing anthropogenic removals by sinks of greenhouse gases in any sector of the economy.”

b) Article 12 “defines a clean development mechanism, which aims to assist Parties not included in Annex I in achieving sustainable development and contributing to the ultimate objective of the Convention as well as help Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction of emissions incurred under Article 3.”

c) Article 17 establishes that “The Conference of the Parties shall define the appropriate principles, modalities, rules, and guidelines, in particular for verification, reporting and accountability in relation to trade in emission rights. The Parties included in Annex B may participate in trading operations allowances for the purposes of fulfilling their commitments under Article 3. Any such trading operations shall be supplemental to domestic action.”

Development of debate

• According to the article written by Edit Antal, in 2000: “the mechanisms of new type (referring to the flexible mechanisms) were promoted by the United States with the aim of complying with the commitments they undertook with a less expensive way. The final decision on the fate of the mechanisms would be taken at the meeting in The Hague, taking into consideration that the U.S. is willing to sign the Kyoto Protocol if it is accepted that the implementation of these mechanisms should be extended to all parts and without limitations.” Likewise, it provided that “in the context of the debate over climate change, most actors agree that the flexible mechanisms will really be of used for companies to save costs in meeting its obligations; however, there is great debate on the effectiveness of these measures on the real environmental improvement.” http://www.ejournal.unam.mx/pde/pde122/PDE12203.pdf

• The Guide to the Climate Change Convention and the Kyoto Protocol – United for Climate states: “There has been concern that these mechanisms can enable the parties to avoid measures to mitigate climate change in the interior, (…) or lead to exchanges of fictitious credits. The Marrakech Accords sought to avert such fears; (nevertheless), these do not set any quantitative limit to the use of these mechanisms. However, the Parties included in Annex I shall provide information on which it is proven that the use of the mechanisms is “supplemental to domestic action ‘.”http://unfccc.int/resource/docs/publications/unitingonclimate_spa.pdf

• According to the latest report of the Secretariat of the Convention on the emissions of countries that have commitments under the Kyoto Protocol and the transactions in the carbon market through 2008, it is concluded that: “In the year 2007, total GHG emissions were 10,510.2 Mt CO2 eq., i.e. 16.4% below the base year level of the Kyoto Protocol (12.575,1 MtCO2 eq.).” “Performing a summary as of 31 December 2008 of the different types of accounts [2], there are 54,515.68 Mt CO2 of eq assigned amount units (emissions trading), that is to say, more than four times the total emissions of 1990), 0.12 units MtCO2 eq emission reduction (joint Implementation) and 208.76 Mt CO2 eq in units of certified emission reductions (CDM), i.e. 1.66% of total base year emissions under the Kyoto Protocol (32% of the reduction commitments)

• According to the World Bank, “the global carbon market continued to grow in 2008, reaching total transactions worth about 126 billion dollars (86 billion euros), thus doubling the value of 2007. Of these, approximately 92 billion dollars (63 billion euros) are transactions permissions of the European Union Greenhouse Gas Emission Trading System (EU ETS). “Confirmed transactions for CERs (Certified Emission Reductions in the primary market) have fallen by almost 30% from 552 million CERs in 2007 to 389 million CERs by 2008. The value of these transactions decreased by 12% from $ 7.4 billion reported in 2007 to 6.5 billion dollars in 2008” http://wbcarbonfinance.org/docs/State___Trends_of_the_Carbon_Market_2009-FINAL_26_May09.pdf

Current status of the negotiation

• In the negotiations over the Kyoto Protocol “improving” flexibility mechanisms or market mechanisms has been discussed, among which are the “evolution” of existing mechanisms, including nuclear projects, among others. http://unfccc.int/resource/docs/2009/awg10/eng/17.pdf

• With regard to negotiations on the Long-term Cooperation within the Bali Action Plan a discussion on “various approaches was introduced in the agenda, including opportunities for using markets,” aiming thereby opening the door to discussion on the creation of new flexibility. http://unfccc.int/resource/docs/2009/awglca8/eng/17.pdf

• “The Copenhagen Accords indicates in its 7th paragraph that ” it is decided to find various approaches, including opportunities for using markets, to enhance the cost-effectiveness and promoting mitigation actions. Developing countries, especially those with economies with low degree of emissions must be given incentives to continue developing a line of low emissions. ” http://unfccc.int/files/meetings/cop_15/application/pdf/cop15_cph_auv.pdf

Projects and Proposals

• In 2004, the Durban Declaration is signed by hundreds of social organizations, independent scientists and environmental activists, where it is stated that “… history has witnessed the commodification of land, food, work, forests, water, genes and ideas. Carbon trading follows in the footsteps of this history and turns carbon-cycling capacity of the Earth into a commodity bought and sold in the international market. In the process of creating this new commodity, carbon, the faculty and the earth’s capacity to sustain a climate conducive to life and human societies is going down to the same corporate hands that are destroying the climate.

• On 28 November 2008, the President of the Plurinational State of Bolivia, Evo Morales Ayma sent a letter to the Conference of the Parties saying that: “Market mechanisms applied on developing countries have not achieved a significant reduction emission of greenhouse gases. “As the market is unable to regulate the financial and productive system and in the world, the market can not regulate the emissions of greenhouse gases either and it will only generate a great deal for financial institutions and large corporations.”

• On May 15, 2009, a Climate Protection Act was passed in the United States which aims to “help prevent, slow, mitigate and reverse global warming and its adverse effects.” The Act provides that “to enforce such purpose, is necessary to establish and maintain an effective market for emission permits, that is transparent and fair and to preserve the integrity of the emission limits and offsets. The rightful holder of emission rights, compensation, offsets may, without limitation, sell, exchange, transfer, and maintain to comply with the established limits.” President Obama has proposed auctioning all permits to raise at least 646 billion U.S. dollars from 2012 until 2019. http://www.bloomberg.com/apps/news?pid=20601072&sid=aVzbV8Sc35PY

• The Presidents of ALBA-TCP at its Seventh Summit held in Bolivia in 2009 adopted the “Special Declaration on Climate Change“, where they state that “the current proposals of developed countries to address climate change as a purely economic matter, distort the principle of “the one who pollutes, pays” for “the one who pays, pollutes. They note that: “One must remember that that confidence in markets, in which it is asked to rely as a source of financing to address climate change, has led to the devastation of the lives of millions, and has proven its failure.”

• On 21 October 2009, the Council of the European Union adopts its position for the Copenhagen Conference, which it establishes: “the crucial importance of carbon markets and reiterated that the imposition of a price on GHG emissions through systems limitation and emission trading and other market-based mechanisms (including sectoral crediting and sectoral trading) is essential to boost investment in carbon reduction and to achieve mitigation targets globally in an economic form. It reiterates his call for a carbon market for all OECD countries to connect all systems, and market expansion in developing countries more advanced in 2020, as important measures for achieving a global carbon market fully integrated.” http://register.consilium.europa.eu/pdf/es/09/st14/st14790.es09.pdf

Reference documents:

• Kyoto Protocol of the UN Framework Convention on Climate Change.

• “Carbon Trading: How it works and why it fails” Tamra Gilbertson and Oscar Reyes, Uppsala 2009

• Durban Declaration on Carbon Trading, Signed on October 10, 2004 Center Glenmore, Durban, South Africa

• Letter from the President of the Plurinational State of Bolivia Evo Morales Ayma to the Conference of the Parties (COP14)

1 comment

I am developing an alternative carbon reduction methodology to cap-and-trade, using the Fee & Dividend approach as presented in Storms of my Grandchildren by James Hansen and adding a carbon-based monetary system. This Tierra Fee & Dividend system is described at the above website and also in write-ups in CMPCC working groups # 8, 12 and 16. The Bolivian Mission at the UN, particularly Councilor Carla Esposito Guevara is familiar with my work. I am suggesting to all working groups that they recommend the establishment of a UN Commission on Monetary Transformation and the Climate Crisis to evaluate and expand the Tierra Fee & Dividend system.